Exceptions

The law allows for the following situations in which a leased employee will not be treated as an employee of the recipient business for pension plan purposes:

• A leased employee covered by a money purchase plan, maintained by the leasing organization and which meets the requirements with a nonintegrated employer contribution rate for each participant of at least 10 percent of compensation. This plan must also provide for full and immediate vesting and each of the employees of the leasing organization immediately participate in the plan (other than employees who perform substantially all of their services for the leasing organization).
• A leased employee who does not constitute more than 20 percent of the recipient’s non-highly compensated work force.

NOTE: An employer that uses leased employees must maintain records adequate enough to determine whether these tests are met. This requirement is not necessary, however, if the qualified plan of the company that’s leasing the individual specifically excluded leased employees from participation, the plan is clearly not top-heavy, and the number of leased employees during the year is less than 5 percent of the total number of non-highly compensated employees covered by the plan.